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Activist investor says eNom was sold too cheap

Kevin Murphy, February 20, 2017, Domain Registries

J Carlo Cannell, the activist investor who has been circling Rightside for the last year or so, was unimpressed with the company’s recent sale of eNom to Tucows.

In a letter published as a Securities and Exchange Commission filing last week, Cannell announced that he has started up a support group for fellow “concerned” investors.

In the distinctly loveless Valentine’s Day missive, Cannell called for Rightside to be acquired, go private or issue a big dividend to investors, and said he intends to campaign to have the board of directors replaced.

On the eNom sale, Cannell wrote that the $76.7 million deal “marks a step in the right direction” for the company, but that he was “not satisfied” with the price or the $4 million legal fees accrued. He wrote:

Conversations with management suggest that the Company took only two months to evaluate and close the transaction. Perhaps if they had been more patient and diligent, shareholders would have enjoyed more than the 0.5x 2016 revenues which they received in this “shotgun sale”.

This price was a fraction of Tucows’ own valuation of 2.6x 2016 estimated revenue. For the two trading sessions following the eNom transaction, NAME traded up 10% while TCX was up 32%, suggesting that investors believe it was a better deal for TCX shareholders than NAME shareholders.

The deal was described at the time by Tucows’ CEO Elliot Noss as an “individual opportunistic transaction”.

Noss later told analysts that the eNom business was floundering, “a flat, potentially even slightly negative-growth business”.

Cannell said last week he has formed Save NAME Group, named after Rightside’s ticker symbol, as a means to exert pressure on the board.

He said it is currently “difficult to justify” the company remaining publicly listed, and that the “sale of the entire company” or a “special and substantial dividend” could help appease shareholders.

He said Rightside agreed last August to let him name a new director, but has dragged its feet approving his suggestion, adding:

SNG intends to become more active and vocal in its efforts to force change at NAME. SNG has compiled a slate of qualified candidates. The names and identity of these candidates shall be disclosed periodically together with other neutral and reliable facts to support the contention of SNG that some or all of the board of NAME needs to be replaced.

Cannell, who owns about 9% of Rightside, first emerged as a critic of the company a year ago.

At that time, he called for the company to ditch its “garbage” new gTLD registries in favor of a focus on its higher-margin eNom business.

He was supported by Uniregistry CEO Frank Schilling, then also a Rightside investor in addition to a competitor.

Tucows says eNom may be shrinking as Melbourne IT drives 2016 growth

Kevin Murphy, February 8, 2017, Domain Registrars

Tucows yesterday reported an 11% increase in revenue for 2016, driven partly by an acquisition, but warned that its more recent acquisition, eNom, may be shrinking.

The company reported revenue for 2016 of $189.8 million, up from $171 million in 2015. Net income was up 41% at $16 million.

For the fourth quarter, revenue was up 9% year-on-year at $48.8 million. Net income was down 9% at $2.8 million.

In a conference call, executives linked some of the growth to the April 2016 acquisition of Melbourne IT’s reseller business, which added 1.6 million domains to Tucows’ DUM.

While Tucows also operates its Ting mobile phone service, the majority of its revenue still comes from domains and related services.

In the fourth quarter, revenue was $30 million for this segment. Of that, $23.1 million came from domains sold via its wholesale network and $3.8 million came from Hover, its retail channel.

CEO Elliot Noss noted that the acquisition of the eNom wholesale registrar business from Rightside last month made Tucows easily the second-largest registrar after GoDaddy, but made eNom sound like a neglected business.

“The eNom business is a flat, potentially even slightly negative-growth business in terms of gross margin dollars,” he told analysts.

eNom’s channel skews more towards European and North American web hosting companies, which are a growth challenge, he said. He added:

We acquired a mature retail business and associated customers which for the past few years has been more about maintaining and servicing eNom’s existing customers as opposed to growth. It has not been actively promoted and as a result has a flat to declining trajectory. It’s something we don’t intend to change in the short-term, but as we look under the hood and get a better sense of the platform as we will with all of the operations, the long-term plan might be different.

The acquisition was “overwhelmingly about generating scale and realizing cost efficiencies”, Noss said.

Tucows paid $83.5 million for eNom, which has about $155 million in annual revenue and is expected to generate about $20 million in EBITDA per year after efficiencies are realized.

Donuts sticks with Rightside despite Google support

Kevin Murphy, February 8, 2017, Domain Registries

Donuts has renewed its back-end registry services contract with Rightside, Rightside has announced.

That’s despite indications a few months ago that it might have been preparing for a switch to Google’s new Nomulus platform.

Rightside said yesterday that the deal, which has seen Rightside handle the registry for Donuts’ portfolio of almost 200 gTLDs for the last five years, has been extended.

It’s a “multi-year” deal, but the length of the extension has not been revealed.

Donuts had suggested last October that it might be ready to move to Nomulus instead.

The company revealed then that it had been quietly working with Google for 20 months on the software, which uses Google’s cloud services and is priced based on resource usage.

Then-CEO Paul Stahura said Nomulus “provides Donuts with an alternative back-end with significant benefits.”

Now-CEO Bruce Jaffe said yesterday that “Rightside’s registry platform has the right combination of innovative features, ease-of-operation, scalability, and highly responsive customer support”.

Now MMX kills off premium renewals

Kevin Murphy, January 23, 2017, Domain Registries

Are we witnessing the beginning of the end for the premium renewal business model?

MMX, aka Minds + Machines today became the latest new gTLD registry to announce it is getting rid of premium renewal fees for all of its premium domain names.

The price changes are retroactive to January 6 and affect all MMX gTLDs, such as .beer, .fishing and .horse.

“We started the process of rebooting our strategy in July last year, when we alerted our many registrar partners that 100% of our premium names sold after January 6th 2017 would have standard, GA [general availability] renewal prices,” CEO Toby Hall said in a statement.

MMX also said today that it is “revisting” its existing pricing tiers.

The reduced pricing will make the domains more attractive to domainers and end users alike, but I suspect the former will be more likely to exploit the new deal at first.

It’s the second new gTLD registry, after Rightside, to announce such a move this month.

Rightside said it was abolishing premium renewals on its expensive Platinum-level domains, though they will remain on more modestly priced premiums.

Rightside sells eNom to Tucows for $83.5m

Kevin Murphy, January 23, 2017, Domain Registrars

Tucows is to become “the second largest registrar in the world” by acquiring eNom from Rightside, paying $83.5 million.

The deal will give Tucows another 14.5 million domains under management and 28,000 resellers, giving it a total of 29 million DUM and 40,000 resellers.

That DUM number, which appears to include ccTLDs, makes Tucows the undisputed volume leader in the reseller world and the second-largest registrar overall.

GoDaddy, the DUM leader, had about 55 million domains just in gTLDs at the last count.

Tucows CEO Elliot Noss told analysts that the deal, along with the April 2016 acquisition of Melbourne IT’s reseller business, were “individual opportunistic transactions”.

He said that Tucows will take its time integrating the two companies, but expects to realize cost savings (presumably read: job losses as duplicate administrative positions are eliminated) over 24 months.

The reseller APIs will not change, and Tucows will not migrate names over to its own existing ICANN accreditations. This could help with reseller retention.

For Rightside, the company said the spin-off will allow it to focus on vertical integration between its gTLD registry business and its consumer-facing registrar, Name.com.

Rightside had come in for a certain amount of high-profile investor criticism for its dogged focus on new gTLDs at the expense of its eNom and Name.com businesses.

Activist investor J Carlo Cannell, supported by fellow investor and Uniregistry CEO Frank Schilling, a year ago accused Rightside of putting too much emphasis on “garbage” new gTLDs instead of its more profitable registrar businesses.

Since then, Rightside has rebuffed separate offers for some or all of its gTLDs by rivals Donuts and XYZ.com.

Last June, it also announced plans to modernize eNom, which Cannell and others had accused of looking stale compared to its competitors.